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Kotak sees an opportunity in bad loans

It said an internal research of the bank showed that the banking system has bad debt of Rs 14 lakh crore (trillion) and that it would require private sector participation to resolve it

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Uday Kotak, executive vice-chairman & MD, addressing mediapersons on Wednesday
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Kotak Mahindra Bank said the rumours that it is planning to take over a bank or a non-banking financial company (NBFC) are purely speculative but showed interest in playing an active role in resolving the bad debt problem in the banking system.

It said an internal research of the bank showed that the banking system has bad debt of Rs 14 lakh crore (trillion) and that it would require private sector participation to resolve it.

Uday Kotak, executive vice-chairman & MD, Kotak Mahindra Bank, said, "Banks need fresh capital to resolve the existing stock of bad assets which have crossed Rs 14 trillion and private participation is required to resolve it."

Banks will have to provide about Rs 4 trillion as buffer for these assets. This is 50% of the entire equity capital of the system, which is Rs 8 trillion. The remaining Rs 10 trillion will require a capital infusion of Rs 2.5 trillion into the asset restructuring companies (ARCs) to resolve the stress, he added.

"Over time, there will be significant consolidation in different shapes and forms. And at that time, you must be in a position to be a significant player of relevance," Kotak added.

Hinting at taking a more active role in resolving the bad debt problem, he said, "We're seeing a significant opportunity coming with the challenges on the levels of stress that needs to be resolved. We believe the future is in significant consolidation."

Kotak has an asset reconstruction company called the Phoenix ARC.

"The ARC business is hugely under-capitalised," Kotak said.

"We see significant growth opportunity. But what is the shape and form of that opportunity is too early to specify now. But I am sure this is a significant long-term opportunity," Kotak added.

The bank informed the stock exchanges that it will consider raising equity capital through qualified institutional placement (QIP) of shares, rights issue or private placement at a Board meeting on Thursday. The bank may also look at a follow-on public offer.

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